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By David Wray on
3/4/2010
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By David Wray on
2/11/2010
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By David Wray on
1/28/2010
The Administration in its preface to its Automatic IRA proposal indicated that 78 million working Americans - half the workforce- lack access to employer provided retirement plans. This is misleading. We know that number is derived by multiplying the civilian labor force (155 million) by the often stated 50% coverage statistic. However, the BLS National Compensation Survey tells us that 67% of all private sector employed workers are covered by an employer provided retirement plan. Further, 76% of all full-time private sector workers are covered according to the report. This includes workers, age 16 -20, waiting to meet service requirements, etc. So we know that the coverage of the “eligible” workforce is well above 67% and the coverage of “eligible” full-time workers is higher than 76%.
The civilian labor force is currently 155 million, but with a 10% unemployment rate only 139 million are actually employed. Then there are ten million self-employed who should not be in the employer provided retirement plan...
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By David Wray on
1/14/2010
There is a big change coming and plan sponsors need to be ready. When ERISA was passed it included a requirement that those who sponsor ERISA regulated plans must file a form, the Form 5500, with the government containing plan related information. Since its initial inception, the Department of Labor and the Internal Revenue Service, who have joint jurisdiction in this area, have periodically revised the Form 5500. The most recent revision was announced in November of 2007 and is effective for the 2009 plan year. For calendar year plan years this means that the Form 5500 for 2009 must be filed by July 31, 2010 unless there is an extension.
The changes announced in November 2007 included changes both in content and the way the Form 5500 is to be filed. The most significant content changes relate to service provider compensation on Schedule C. These changes were addressed in a Webinar sponsored by PSCA, the Securities Industry and Financial Markers Association (SIFMA) and US Chamber of Commerce on January 12....
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By David Wray on
12/28/2009
As we reflect on the holiday season and the New Year, it is important to be thankful – thankful for our families and friends and thankful for our profit sharing/401(k) plans. Without employer-sponsored defined contribution plans, the market correction of 2008-2009 would have been more severe. Because of DC plans, trillions of dollars stayed in the market and billions more were invested in 2009, cushioning the downturn and helping support the current market rally. By the way, if we ever needed evidence supporting the validity of dollar cost averaging this year has supplied it.
I am also thankful for our earlier success in achieving permanence for the 2001 Tax Act retirement provisions. Without this, beginning in 2011 plan sponsors and providers would be facing perpetual uncertainty and one-year extensions, often retroactively enacted, of key pension provisions. Beginning in 2010 and in every year thereafter PSCA would have been forced into negotiating with Congress to get important defined contribution provisions...
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By David Wray on
12/17/2009
The benefits of investing in a 401(k) are many, but one rarely mentioned is that 401(k) participants can rebalance their plan asset allocation without concern about the tax consequences. An optimal way to manage a long-term investment account is to initially identify and implement an asset allocation strategy and then to periodically bring the asset allocation back to the original plan. Not only does this approach deliver optimally for the strategy chosen, it forces consistent selling high and buying low of the assets in the portfolio, which can significantly increase return. However, in a retail account such buying and selling often generates increased taxes each time you rebalance, and the benefit of rebalancing is somewhat mitigated. In contrast, in a 401(k) there are no tax consequences, and the participant reaps the full benefit of rebalancing. Rebalancing is not only a good practice, it’s a 401(k) advantage.
David
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By David Wray on
11/18/2009
Individuals saving for retirement in an employer-sponsored retirement plan should have the same tax diversification opportunities as individuals saving in an IRA. PSCA is taking action. We are working for changes that would permit Roth conversions within an employer plan.
Starting in 2010 even those making $100,000 or more will be able to convert tax deferred accumulations in traditional IRAs and employer plans into Roth IRA savings. Further, during 2010 those who make such a conversion will be allowed to defer their tax liability over a two-year period in 2011 and 2012. Unfortunately, the Pension Protection Act of 2006 (PPA) provision allowing participants to convert/roll non-Roth money from an employer plan into a Roth IRA did not allow for conversions to a designated Roth account within the plan. Plan participants who want to convert must transfer plan assets into IRAs to do so, and many will, starting in 2010--unless the law is changed.
To bring employer plan and IRA opportunities into conformity and to prevent a migration of plan assets into IRAs, PSCA is recommending changes to the Roth 401(k) and 403(b) rules (i.e. Code Section 402A) that would:...
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By David Wray on
11/11/2009
The US made a decision in the 1930s to limit government delivered “benefits" to Social Security-provided retirement income. Paying for other benefits was a personal responsibility, though in some cases employers were encouraged to help. Since then government-provided benefits in the US have expanded but mostly as part of the safety net.
European countries took a different direction. In Europe certain benefits were defined as a right, and the government provided them to everyone. Some here have been disappointed at our more limited approach and attempts to implement the European approach have been ongoing. For example, they were successful in getting Medicare adopted in the 1960’s. Saturday's vote in US House of Representatives on health care shows the current strength of those advocating this philosophy.
It is not too soon to compare what is happening with healthcare to what could happen with the retirement system. The stage was set for the healthcare debate by a vigorous effort to convince Americans...
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By David Wray on
11/3/2009
DC plans, like the 401(k) and DB pension plans, are like apples and oranges, both good for you but very different. With a DC plan, the employer and/or the employee contribute to the plan over time, and the benefit is the sum of those contributions and the earnings thereon—a lump sum. A DB plan provides a formula-based income stream at retirement based on years of service, compensation and occasionally age that can often be converted to a lump sum. Neither approach is risk free.
The risks inherent in DC plans are those accompanying the management of any pool of wealth. First, the assets must be maintained over time. Participants need to retain their accumulations in a DC plan or IRA over their working careers. Regulatory changes to facilitate this have been ongoing. However, as I have written before, this needs to be a voluntary decision.
DC money must be managed so that it retains its purchasing power as well as grows in value. This subjects the assets to market volatility. Strategies to manage that risk...
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By David Wray on
10/13/2009
Our opponents must be extremely disappointed with the performance of the 401(k) system over the last year. In the late 1980s many argued that a future economic correction would result in a collapse of the system. Some went so far as to suggest that participant anger would lead to unionization of workforces covered by 401(k) plans. Instead, we have the opposite. Participants are not blaming their employers for market performance and continue to save in their plans, benefiting from the recent improvement in equity markets.
Rather then admit they are wrong, those who dislike the 401(k) system continue to resort to misrepresentation and distortions like those reported in the October 9 Time article “Why it's time to retire the 401(k)." For example, as in the article, they continually refer to average account balance size, failing to point out that the typical 401(k) participant has only eight or nine years of participation...
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